How Likely Is Cow Herd Expansion In 2013?

USDA estimated that there were 29.833 million beef cows in the country on Jan. 1, 2012. The USDA's annual cattle inventory report, to be released on Feb. 1, will provide this year's first official count of the herd, but based on beef cow slaughter and expected heifer retention last year, beef cow numbers were likely 1 percent to 1.5 percent lower on Jan. 1, 2013, says Darrell R. Mark, Adjunct Professor of Economics at South Dakota State University.

"There will be much discussion throughout the year about the possibility of the beef cow herd beginning expansion from its 50-year low," Mark said. "While expected record cattle prices point to growth in beef cow numbers, the individual choice for a producer to expand cow numbers is a complex, multi-year decision made difficult by high and volatile input prices."

Mark says a number of factors will influence cow-calf producers' decisions regarding herd expansion in 2013: availability of pasture, range and other feedstuffs; land values and rental rates; expected cattle prices for 2013 and beyond; herd productivity; and lifestyle choices.

"Ultimately, the decision to expand this year will be based on the expected returns available this year," he said. "While there are a number of ways to increase cow herd numbers, including retaining additional heifers from the 2013 calf crop or breeding retained heifers from last years' calf crop, at this point in the yearly production cycle, I think most producers would concentrate on buying bred stock so that a calf is available to be sold in 2013."

Mark says it is critical for producers to develop an enterprise budget for their cow-calf operations based on projected cattle prices and expenses for 2013. Whether or not to grow a herd this year will be determined by the potential returns available this year. Mark adds that expenses are vary considerably across different geographic areas and amongst producers, but he provided some average costs in a recent iGrow.org article; visit iGrow.org/beef to review his budget example.

"Interestingly, even in a year like 2013 when we expect near-record high feeder cattle prices, my pro-forma cow-calf budget generated a sizeable loss when including all fixed costs and opportunity costs for labor and other non-cash variable expenses. However, there was more than a $50 per head return over cash costs including pasture," Mark said. "So, some producers may expand their herds in 2013 based on covering their cash costs."

Mark adds that his projections suggest a limited number of producers will find a profitable opportunity to expand - and even then they have to have access to productive pasture and other feedstuffs and capital."

But, the historically tight supply of cattle suggests feeder cattle prices should remain high for years to come, and suggest a profit opportunity may exist over the next several years for those that can make the investment to grow their herd," he said. "In all likelihood, any expansion plans this year will be governed by the drought and when/if it ends."